Be warned: SCRA doesn't apply to re-enlistments

Web tales wrong on interest-rate reductions

Feb. 25, 2014 - 08:47AM
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A new pitch scheme encouraging troops to lower the interest rates on their loans try to get money from financial institutions using an erroneous false claim under the Servicemembers Civil Relief Act is making the rounds of social media — and has even been touted by an official Navy publication.

But it could land troops in trouble, and officials are scrambling to spread the word about what financial protections the SCRA does, and does not, provide.

Some troops have been crowing on social media about receiving hundreds or thousands of dollars in refunds after asking their creditors to reduce the interest rates in their debts to 6 percent under the SCRA — based solely on the fact that they recently re-enlisted.

Just one small problem: That provision of the SCRA does not apply to re-enlistments.

Under the law, service members can get their interest rate reduced to 6 percent on debts that were incurred before military service. The law defines service members as those on active duty; it also includes National Guard members and reservists called to active duty for more than 30 consecutive days.

Those who qualify can ask their creditors for the interest-rate reduction. Most who qualify are Guard and reserve members called to active duty; the intent is to protect reservists whose military pay while mobilized may be much less than what they earn as civilians. However, the provision also applies to those entering regular active duty for the first time.

Loans for mortgages, some student loans, credit card accounts, furniture loans and other loans qualify for the interest rate reduction — again, if those loans were obtained before entering active duty, or “pre-service.”

“Bottom line, the SCRA provides for pre-service debt reduction and does not apply to a re-enlistment” unless there is a break in service, said Jennifer Zeldis, spokeswoman for the Navy’s office of the Judge Advocate General. A Defense Department spokeswoman referred all questions to the Navy.

In addition, depending on the case, administrative or disciplinary actions could be taken against a service member who tries to claim the interest-rate reduction when reenlisting, Zeldis said.

“Falsifying documents or intentionally misrepresenting official documents are examples of acts punishable under the Uniform Code of Military Justice,” she said.

But each case and set of facts must be evaluated, she said, noting that presenting information accurately without false assertions or intent to deceive “is not inconsistent with rules and regulations.”

“We highly recommend that all service members consult a legal assistance attorney if they have questions about their rights under the SCRA or how to go about accurately representing their current status,” Zeldis said.

Another provision of the law that reinforces the fact that it does not apply to re-enlistments. It allows a creditor to go to court to contest the interest rate reduction if the creditor believes the service member’s ability to pay more than 6 percent interest is not “materially affected by reason of the servicemember’s military service.”

In other words, troops who make more money while in uniform than they did before entering active duty may not qualify for the rate reduction.

“How is an active-duty E-6 who incurs a ton of credit card debt during an enlistment going to show that his military service materially affects his ability to pay the debt at the contract rate when he’s making precisely the same, or possibly even more, in the re-enlistment period for which he’s claiming SCRA benefits on the interest rate? He can’t,” said John Odom, a retired Air Force colonel and former military lawyer who is a recognized expert on the SCRA.

An Feb. 12 article in the online official Navy publication All Hands magazine on Feb. 12 encouraged sailors to ask for interest rate reductions based on their re-enlistment contracts.

Terrina Weatherspoon, the article’s author as well as the editor of All Hands magazine, said she learned of the practice on a social media site.

“I thought this was a great program that was making a difference in their lives,” she said in a Feb. 19 interview. “Clearly the Navy’s magazine wouldn’t put out information to encourage sailors to go out and commit fraud.”

Weatherspoon said the article was limited to that single Navy publication, which has since published a retraction.

“Our team, along with our legal public affairs reviewer, failed to connect all the dots before going live with the information, and for that we apologize,” the article stated. “Despite our good intentions and belief that our information was accurate, the editorial liberties we took caused the information to potentially lead to abuses of SCRA protections.”

Odom noted that if the original All Hands article had been correct, “all a career service member would need to do to ensure an artificially low interest rate would be to wait until just before re-enlistment and purchase a new car and a household full of new furniture at higher than 6 percent interest rates, and then wait until the week after re-enlistment and claim SCRA protections for 6 percent interest rates.”

“That just isn’t how the SCRA works to protect service members.”

Don Giles, president of Armed Forces Bank, which has branches on more than 30 military installations, said his bank has had no requests like this, and is aware that re-enlistments wouldn’t qualify for SCRA reductions.

It’s not clear why other creditors would agreed to reduce interest rates for reenlisting service members — and in some cases, even refund thousands of dollars in interest payments.

“I think some creditors have gotten ‘gun shy’ about the SCRA and are bending over backward to keep from making any noise or waves,” Odom said.

No financial institutions were named in the All Hands article. Whether any will require troops to pay back money that was erroneously refunded is not known.

Odom said that just after the war started, an Air Force master sergeant sent a message to her friends saying that now that the war had started, everyone could get their mortgage interest rates reduced to 6 percent, regardless of when the mortgage was signed.

“It took weeks for us to calm people down and correct that erroneous statement. I predict a similar educational campaign over this latest re-enlistment urban legend.”